Industry awaits action on tackling regulatory barriers to energy storage innovation, says expert

Specialist in commercial energy contracts Lindsay Edwards of Pinsent Masons, the law firm behind Out-Law.com, said there has been "a shift in the language used to describe energy storage" in recent months as new energy storage technologies have come to prominence.

However, Edwards said that onus is on the Department of Energy and Climate Change (DECC) and Ofgem to clarify the regulatory and commercial environment to ensure the most viable innovations can come into mainstream use.

"Whereas there has long been a recognition of the importance of energy storage and of the need to accelerate its development, there is now talk of a ‘breakthrough’ in the technology," Edwards said. "A sense of excitement and imminence, absent to-date, has been injected into the debate. This is extremely welcome: effective, commercially viable energy storage will be essential if we are to integrate renewable energy technologies and cut ties to expensive nuclear and carbon intensive fossil fuel base load generation." 

"However, questions remain as to whether the regulatory regime has kept pace with the rate of progress being made on the technological side. Numerous regulatory inconsistencies remain. An example includes the way energy storage is current classified – as 'generation' – which prevents it being owned or operated by distribution network operators. These regulatory barriers must be ironed out if the technology is to be scaled up and commercialised successfully," she said.

Edwards said, though, that both DECC and Ofgem have shown awareness of the fact that regulations can sometimes serve as a barrier to innovation in the energy market.

In December, in a report into a smart energy system of the future, DECC said that it had "identified some potential barriers that mean new forms of flexibility such as DSR (demand side response) and storage may not develop in a timely or adequate way”. DECC is set to consult on energy storage in the spring.

An Ofgem consultation paper entitled 'The Future of Retail Market Regulation' (75-page / 1.01MB PDF), also published in December 2015, demonstrated that the regulator also sees the need for flexible regulation that encourages innovation, Edwards said.

Ofgem said: "The way electricity and gas are supplied to Britain’s homes is changing significantly. Consumers stand to benefit from innovation… This presents major opportunities but also challenges both to the industry and Ofgem as regulator. To manage these changes effectively, we need to adapt our approach to regulating the retail market."

"Relying more on principles will enable us to continue protecting consumers while encouraging innovation. We want a marketplace where innovation and discovery can happen and it is easier for new entrants to join. In short, we want a competitive retail market that delivers positive outcomes for consumers and can be disrupted by powerful innovation," it said.

Ofgem is expected to publish an 'Innovation Plan' in the spring. Edwards said that the outcome of the DECC and Ofgem consultations "will be keenly awaited by the industry".

"It is to be hoped that the government will come out with a clear position that capitalises on the momentum generated in the industry so far this year," Edwards said.

Recent media reports, including in the Guardian and Utility Week, have highlighted the increasing excitement and debate about energy storage technologies, Edwards said.

In its December paper, DECC referenced some of the new energy storage technologies being developed and the potential benefits of the technologies, being put into greater use.

At user-level, it said consumers could "store electricity in batteries for when it is more useful or when electricity from the grid is more expensive" or alternatively "convert electricity to heating or cooling for use later". It also outlined further benefits relevant to the management of energy supply and demand.

"At the network level, storage (e.g. large batteries, thermal storage in heat networks) could be used to avoid local network constraints and defer costly reinforcement," DECC said. "At a system level, large scale storage (e.g. pumped storage, compressed air storage) could be used to help meet peaks in demand."

"Storage devices, whether single large installations or aggregated small installations, could provide valuable support services to the power system for voltage and frequency control; [and] electricity could be converted into other energy vectors (e.g. thermal storage, hydrogen) to allow the intra-seasonal transfer of energy," it said.